Why This Rally Will Continue 94 comments
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This rally has been interesting. Some say it is an example of efficient markets pricing in the fact that economic doomsday has passed. Others say it is nothing more than an example of “irrational exuberance.” Unfortunately, both are right. The “green shoots” and “less bad” economic data will eventually bear fruit, which will give the market a real reason to rally. Furthermore, firms will continue to beat low earnings estimates, which will provide the market the momentum it needs to continue its upward march.
The Green Shoots Will Turn into Plants
The main driver of this rally has been the so-called “green shoots,” or bright spots of economic data that have been released since the market’s March bottom. The market has taken data like the increasing unemployment rate or increasing jobless claims and rallied on it, basing its claim to rally on the fact that the data beats its estimates. This reaction is certainly irrational. Q2 GDP data shows that consumption is declining, and banks continue to increase write-downs on commercial real estate and consumer credit card loans. These economic indicators, however, do not phase the market; it continues to march on.
Eventually, though, the green shoots will turn into plants. And, that is what we will see in Q3: GDP growth is almost universally projected to be positive. That coupled with corporate earnings “beats” along with more “less bad” economic data should propel the market upward through Q3.
Corporate Earnings and Bank Stocks
Another recent driver of this rally has been corporate earnings. During this earnings season, 74% of companies have beaten earnings estimates. The reason for this is simple. Firms along with analysts gave ridiculously low earnings and revenue estimates. Firms’ cost cutting measures easily allowed them to beat these lowball estimates, which propelled the market higher and gave it confidence.
Additionally, in a recent WSJ editorial, Zachary Karabell raises a good point about the source of US corporate earnings. He points out that most firms are not solely reliant on US economic growth. Even if the US continues sluggish growth, firms will reach outside the US to generate the growth and revenues necessary to keep up with earnings expectations. It seems that the fates of the stock market and the US economy have begun to diverge.
One check against the market’s exuberant joy during earnings season should have been bank stocks. These firms still hold a large amount of deteriorating commercial real estate and consumer credit card loans. Additionally, they still possess a large amount of various illiquid asset backed securities. Banks and Congress, however, prevented these factors from having any real effect by pressuring the change of FASB Rule 157. Because banks can now estimate the fair value of their illiquid (and deteriorating) assets instead of relying on market prices, they have successfully finagled their balance sheets into looking healthier than they actually are. That, coupled with large trading profits, easily overshadows any impending problems for banks. Because banks were the main cause of this crisis, their recovery is crucial to market confidence. And, because their profitability and health does not seem to be threatened, banks will continue to infuse the market with confidence.
Sluggish Recovery
One argument most bears levy against bulls is that economic recovery will be sluggish. It will be marked by high unemployment, low consumer spending, increased savings, and even high inflation. These claims are true, however, the market has already factored them into stock prices. When the front cover of Newsweek says that the recovery will be sluggish, it is safe to say that everyone knows the recovery will be sluggish, and that obviously includes the stock market. Additionally, as the sluggish recovery continues, firms and analysts will continue to produce low earnings estimates that will continue to be beaten, propelling stocks higher.
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This article has 94 comments:
If it were me, I'd be grateful for the free cash the past few months and looking for a fast trip out of Dodge before this "sluggish recovery" turns into a death spiral under the foreclosure tsunami (great numbers in July, eh, and they haven't even really started with the Option Arm and Alt A resets/recasts), CRE meltdown ("extend and pretend" those loans guys while the the tenants in your properties disappear into the night), and unemployment nightmare that is still unfolding (one may wish to consider that continuing claims is less relevant here than claims that have run out - those people who ran out of benefits still exist, capiche?).
Just because you sprinkle a little pixie dust around and click your heels three times, doesn't mean that trees grow endlessly to the skies. Stocks are priced for perfection here... and until the banks clear a couple or three trillion in utter and intentionally mis-priced crap off their books, perfection is a long ways off.
This rally is a relief rally; relief that we did not disappear into the deep. But nothing is clear about the economy...yet.
This is not a just a recession, it is a rebalancing of life styles and work for 20% of the US population and a lowering of income for all. The process will leave everything changed in quantity and quality.
The rally is just the surface of a much larger storm in society.
Fundamentally the economy does not support any recovery in the foreseeable future.
If you feel exuberant - then by all means, jump right in and bet the farm! If not? The best place to be is safe, so that great stock buys can be made when the 'trap door opens' shaking out all those headed for the 'house'.
Both Geithner and Bernanke remind me of Chance the Gardener in this way. Both are pushing the button over and over again -- but nothing seems to be changing.
On Aug 13 09:30 AM Tom Armistead wrote:
> Great article, that stuff about green shoots could have been written
> by Chance the Gardener.
For the past 40 years I've been helping people live their lives better. I've learned that people change, if they do, based on education, coaching and face plants with reality....when the 1st two don't work.
Living beyond one's means only changes with face plants. However, the vast majority of people go back to old habits, it's part of our internal self balancing process....why change is so difficult.
So, I'll have to be shown that people are really different re money and creating lifestyles that create anxiety. I want it to happen. My life's work is teaching people to create lives that create peace of mind. But let's see.
G
At the moment I am 50% cash and plan to see how the autumn plays out and if things hold I will invest into solid dividend payers since I expect growth to be small and the market to slide sideways for the next 2-3 years barring any major corrections.
Perhaps short-term traders don't care about the actual earnings of companies. They only care if these earnings are better than expected or not. Because they don't hold their shares long enough to benefits from the dividends companies pay.
But you can't say the same about long-term investors. Long-term investors do care about the actual earnings of companies in absolute sense. Because the reason why they invest is to take a share of their company profits.
When it doesn't make sense for long-term investors to buy due to poor company profits in absolute sense. Then the stock market rally can't continue for long. Because by definition, short-term investors don't stay invested for long. Sooner or later they start selling. And that brings an end to the stock market rally.
Don't go short yet. But get ready to go short at the drop of a hat.
On Aug 13 09:25 AM joe6strings wrote:
> Great article and I agree - this is the time to be fully invested.
> My investment strategy is betting on further stock appreciation in
> key segments including banks/financials and technology.
Track calls over time : tinyurl.com/klkmcu
The optimism is exactly what the market needs to top out.
Baltic Dry Index is down now for the 13th straight day. Global economy is slowing folks.
I would be careful of buying here if I where you. The market still has not close above the 38.2% Fibonacci level!
As for the market, we sold off into March as if the financial system would be in shambles for quarters to come. Since we have seen some stabilization, attractive values were apparent. But today's market is supported by trillions of cash left sitting on its hands for too long. They're playing catch up with every 50 point decline. This will continue till the VIX gets into the teens.
I've often wondered the same thing. It is undeniable that Americans are over extended and that the recovery (when it finally arrives) will be sluggish. Also, it is clear that many credit limits are being reduced by the banks. But what is less clear to me is whether, once things balance out at whatever level in a few years, consumers will retain the lesson about living within their means and saving something for a rainy day. My guess would be many folks will return to the overextended lifestyle. The more austere the years of recovery turn out to be, the greater the temptation among some to "live it up" when the opportunity arises. So I think there will be some reduction in consumer activity in the long haul as some folks spend less and some folks havie less credit. But I don't assume this is the last consumer credit bubble for the next 50 years.
On Aug 13 10:18 AM thotdoc wrote:
> I cannot disagree that lifestyles are being shaken up. I do wonder
> how permanent the changes are.
>
> For the past 40 years I've been helping people live their lives better.
> I've learned that people change, if they do, based on education,
> coaching and face plants with reality....when the 1st two don't work.
>
>
> Living beyond one's means only changes with face plants. However,
> the vast majority of people go back to old habits, it's part of our
> internal self balancing process....why change is so difficult.<br/>
>
> So, I'll have to be shown that people are really different re money
> and creating lifestyles that create anxiety. I want it to happen.
> My life's work is teaching people to create lives that create peace
> of mind. But let's see.
>
> G
I have not heard anybody use the term "efficient markets" in a while.
We have a government that is propping up everything in sight. All of that "propping up" will not work if the stock market is not also propped up.
As the Soprano's would put it, "I'm not sayin'......I'm just sayin' "
beginning of month = rally
end of month = rally hard
end of quarter = rallying too hard for words
California BK = fiscal rejiggering
Michigan next in line = never mentioned
CRE depression = REIT's explode higher
Housing JUNE sales edge higher = housing is rebounding(again)
GS front running trades = liquidity preservation
Banks own congress and the Fed = bank rally
consumer is insolvent = consumer is saving
mass layoffs = across the board earnings' improvement
earnings are not improving = earnings are beating street's expectations
STILL no jobs created= the consumer is temporarilly retrenching
deflation = bull rally
expiration of unemployment benefits = unemployment is abating OR
contracting(either will do just fine)
Isn't our economy consumer based? = don't ask, don't tell consumer IS 70% of economy = rebound will be business based
low interest rates = good for stocks
high interest rates = great for stocks
collapsing dollar = buy stocks
rising dollar = not gonna happen
$10 frozen dinner = sure sign of recovery
CIT BK = HUUUUUUUUGE RALLY
CIT not yet BK = reason to be bullish
Bank failure Friday = stabilization
oil @ 50 = recovery is close
oil at $70 = recovery is incredibly close
oil at $90 = starting to recover
oil @ $110 = sign of increased consumer spending
oil @ $5 = boon for Joe Consumer
Gas @ $2 = tax break
gas @ $3 = mustard seeds for economic recovery
gas @ $4 = depression :)
Gas @ $1 = not in our lifetime
employment @ 10 % = better than expected
employment @ 11% = as expected
employment @ 12% = not unexpected
employment @ 13% = could have been expected
real unemployment right now @ 17% = never discussed
real unemployment @ 22% = market could correct from here
stealing from our grandchildren = stimulus
stealing from our great grandchildren = "cash for clunkers is a huge
success"
government buying people cars = economy showing signs of life
economy is already dead = S+P 1000, DOW 10k
bear market rally = NEW bull market rally
no basis for NEW bull market rally = dis-included in pumper's handbook
10% unemployment
effects of socialism
depressionary states
higher taxes = THE NEW NORMAL
oppressive government
social unrest
decending to mediocrity
AND IF ALL ELSE FAILS(which probably will):
WWIII = TANGIBLE MANUFACTURING GREEN SHOOT
LMFAO!
I would hope you are right, except it's an insult to anyone who has been fired to gin up quarterly results that the market has rallied.
This rally is a spitball of wadded up taxpayer dollars and pink slips, shot out by a corrupt government in collusion with banks and Wall Street. It will reach the top of it's arc and come crashing down when gravity (reality) catches up with it.
1930 is all you really need to know.
I would cheerlead with you if this were 1982 and tax cuts and production of real goods were imminent possibilities.
How can you even consider asking such a question..
Helen Keller is buying up the market
"Eventually, though, the green shoots will turn into plants. And, that is what we will see in Q3: GDP growth is almost universally projected to be positive. That coupled with corporate earnings “beats” along with more “less bad” economic data should propel the market upward through Q3."
GDP growth is projected to be positive, even though the economic data is 'less bad' (i.e., getting worse at a slower rate). Your logic is flawed. Regardless what the projections are, an economy getting worse at a slower rate will probably disappoint in the GDP department. Earnings are based off of disaster lows, so no surprise there if they exceed expectations. Wall Street can manipulate estimates with impunity.
"Zachary Karabell raises a good point about the source of US corporate earnings. He points out that most firms are not solely reliant on US economic growth."
Europe is in worse shape than we are. Asia may be doing ok, but investing in US stocks is not the best way to play the Asia market. There is still the problem that these mercantilist economies are dependent upon large trade surpluses, which have still yet to re-materialize for them, and probably won't in the foreseeable future.
Given that these two points are the main arguments for this rally continuing, I must give this article a C-, for braving what is in the face of reality a doomed argument.
2. Foreclosures are climbing.
3. Take a stroll around your town and look at the empty commercial spaces.
4. Continued job losses.
5. Government creating vast amounts of money.
6. US increasing debt ceiling.
Ah, the good times are here again.
"Retail sales failed to eke out a gain in July, dipping 0.1 percent despite a boost from the popular "cash for clunkers" program, according to new government data."
www.washingtonpost.com...
"In the first three months of this year, net worth of Americans shrank by $1.3 trillion, the Fed has reported, mainly because of lower home prices and investment losses. Consumers responded by cutting back on their spending at a 1.2 percent annual rate in the April-June quarter, after a slight increase of 0.6 percent in the first quarter.
The savings rate of Americans, meanwhile, jumped to 5.2 percent in the period April to June, the highest since 1998. A higher savings rate, however, could slow economic recovery because consumer spending accounts for 70 percent of economic activity."
www.nytimes.com/2009/0...
"Foreclosure filings jumped again in July, including a 25 percent increase over last year in the District, despite a massive government program aimed at keeping millions of borrowers in their homes."
www.washingtonpost.com...
Should we start popping the corks now? Maybe a picture of Geithner and Bernake with pointy New Year Eve hats on would provide the confidence needed. Well, maybe just the pointy hats.
1. Retail sales have been doing badly lately. Many think the back to school sales will disappoint.
2. Foreclosures were up by 7% in July from June. Up 32% from July of 2008. This is very bad for banks.
3. The FASB is thinking of expanding the mark to market rules to include more types of assets. This would cause banks to have to take further write downs. Again bad for banks.
In other words it looks like retail and banking are in trouble. Airlines are also in trouble. China is supposed to ease its buying in 2H, so China will not lead higher as dramatically. China Construction Bank said they will make 70% fewer loans in 2H.
We are also seeing a topping pattern in the market. We have reached the Oct-Nov. 2008 levels of the stock markets. These are providing heavy resistance to further movement up in the short term. A retracement seems likely before any further move up. Since this week is really the end of earnings season, we may begin to see the retracement next week. I suspect GS et al may try to hold the market steady next week, so they don't have to pay off too much on options. After that all bets are off.
But if you think things will be different going forward, that people will change their habits then you are thinking as you should be because everybody that I know and have spoken to is scared to death and rethinking how they live there lives, especially those of us within 10 years of 65 because we realize time is no longer our friend. A recent metlife study involving several thousand people confirmed that people are definitely looking at their futures quite differently and nothing going forward will be the same.
Just look at the lack of volume for this rally, unheard of because you need the retail investor in the market to provide the needed support for a sustained bull market, its not there, where is it then, its in the bank thats where.
I also do not understand how you can say that "the 'green shoots' and 'less bad' economic data will eventually bear fruit, which will give the market a real reason to rally," and then turn around and say that "in the long or medium term, the stock market may finally
realize the state of the US economy and strongly correct itself."
These are both long-term statements. I'm sorry, but you are losing credibility to me.
On Aug 13 12:44 PM Richard Graham wrote:
> I think that I should clarify the intent of my article. I am not
> saying that the economic outlook for the United States is strong
> or that this stock market rally will continue indefinitely. Rather,
> I believe that the rally should continue at least into quarter 3
> of this year. I believe that the market will continue to act as it
> has since March, with only minor correction in the short-term. This
> behavior is the main driver of the rally. This is not a long or medium
> term outlook. In the long or medium term, the stock market may finally
> realize the state of the US economy and strongly correct itself.
Take a look at New Jersey, New York and Mass. It is the same story across the Country. This debt is going to be in the trillions. These union funds have been lost in the stock market and now, like locust, will turn to field of taxpayer to make up this shortfall. Are these government unions and unfunded pension and retirement plans too big to fail?
Take a few moments and familiarize yourself with the Pension Benefit Guaranty Corporation. Who will be responsible for that debt? Must be that same top 1 to 3% of the rich. Man that must be a magic well as it seems bottomless and the source for all of these massive spending sprees.
Next question.
Really, I though that markets were efficient in the long run. So you are saying that the market continues to go up based, in part, on companies beating low earnings estimates. But won't enough market participants ultimately understand that the "low earnings estimates" are basically a reflection of lower growth, and then bring the market down?
Good point, and because this opinion is universal or widely held, we may safely conclude that GDP will instead be flat or negative.
What are the signs/steps to an economic recovery in the eyes of economic indicators? Im looking for something to the effect of- "first supply goes up (shown by this indicator), then people work more hours (shown by this indicator), then companies hire more (shown by this indicator)...". Im most concerned with unemployment rate; continuous claims; total workforce; change in manufacturing payrolls; u6 data; average earnings month over month (yr over yr) (week over week); and other indicators/reports of the like. And in terms of that, how is the economy looking now?
thanks
-
A
On Aug 13 01:03 PM Big Bubbette wrote:
> While slightly off topic, one other item that continues to get no
> attention is the massive unfunded public debt for government unions
> and workers. In California it is estimated to eventually be in the
> hundreds of billions of dollars, starting to hit next year. (If you
> think California had a hard time closing a 26 billion dollar shortfall
> this year...)
>
> Take a look at New Jersey, New York and Mass. It is the same story
> across the Country. This debt is going to be in the trillions. These
> union funds have been lost in the stock market and now, like locust,
> will turn to field of taxpayer to make up this shortfall. Are these
> government unions and unfunded pension and retirement plans too big
> to fail?
>
> Take a few moments and familiarize yourself with the Pension Benefit
> Guaranty Corporation. Who will be responsible for that debt? Must
> be that same top 1 to 3% of the rich. Man that must be a magic well
> as it seems bottomless and the source for all of these massive spending
> sprees.
This is all the more reason we are running on fumes. 74% of companies beat earnings estimates, some that were reduced by almost 100%. In addition, the majority of the companies that beat grew their bottom line, not the top. Cost cutting is not a bottomless pit my friends.
Banks and FAS 157 - also known as kicking the can down the road. The amount of assets off the balance sheets the big banks carry is staggering. take that with the fact that the only reason heavy hitters like Citi and BAC didn't post losses was because they liquidated assets. How does trading profits signal a sustainable rally? Great, you guys all know how to screw people out of their money whether the market is going up down or sideways. "finageling" balance sheets doesn't help anyone sleep at night as a new house of cards is being built...
Is the world economy improving? In some cases absolutely. 50% or whatever since March? Try again.
Once the market abandons its "unrealistic hopes" for a more rational assessment of economic prospects -- as appears inevitable -- you can expect these stocks to suffer substantial declines, taking broad market indexes with them (at least partially).
Housing is not a Buble until it Bursts.
Today, I recieved the "Wells Fargo 2009 Mid Year Outlook."
In the pamphlet, their first bulleted point is: "In our view, the economy will begin a modest recovery by the end of 2009."
Condensing the rest of the bullets, they state that inflation will remain low for the next year or two, during which they expect the dollar to weaken modestly. They believe that the March lows will hold, but caution that the market may have a near term pullback, during which they will increase positions. They like the industrials and consumer discretionary, and are focusing on senior debt of highly rated companies. They favor the emerging markets.
Their S & P end of the year call is 1015.
With the S & P right now at 1004.6, we all might as well take the rest of the year off (just kidding, of course!).
No-one knows when the race for the door will be started by a big gun making a lot of noise and scaring eveyone, but most know that it will happen. I'm late in, I know, and trying to recoup some short losses; and I hope I'll get out in time. But the adrenaline rush, especially in this rarified atmosphere, is really great!
On Aug 13 11:01 AM Swashbuckler wrote:
> "Because banks can now estimate the fair value of their illiquid
> (and deteriorating ) assets instead of relying on market prices,
> they have successfully finagled their balance sheets into looking
> healthier than they actually are." "That.....easily overshadows
> any impending problems for banks." Talk about convoluted. A very
> poor attempt to justify a further advance in stock prices.
On Aug 13 02:34 PM AndrewBaker wrote:
> Yes, this rally will continue; and no, it won't go on for long.
> We are in the last segment of the current rally where there is a
> slight weighting of optimists/fools/believing bulls/your name for
> it here still buying on the small dips caused by pessimists/thinking
> people/disbelieving bears/speculators selling and either taking profit
> or getting out whilst they still can without losing too much.
>
> No-one knows when the race for the door will be started by a big
> gun making a lot of noise and scaring eveyone, but most know that
> it will happen. I'm late in, I know, and trying to recoup some short
> losses; and I hope I'll get out in time. But the adrenaline rush,
> especially in this rarified atmosphere, is really great!
Under this scenario, guess what, a rising unemployment rate is exceedingly bullish as it puts political pressure on the central bank to maintain excess liquidity which spills into stock and bond markets because the real economy is slow.
Its not the foreign earnings pushing US stocks higher its the foreign stock markets. The move in the China market has created enormous increases in wealth and some of that wealth will seek diversification in other markets. There is a spread relationship in the growth rates of the major markets.
If you want to see my ideas on the lag effect between markets and economy check previous posts. good luck.
And here is the 5 main reasons the Bears say reality is coming in late August early Sept.
seekingalpha.com/artic...
I'm sorry for my biting sarcasm in the face of your revision.
The tone of the original article made it sound as though you were a long term bull and that this was not a short term and unrealistic rally and that a return to reality correction would occur.
Cheers,
Eric
On Aug 13 12:44 PM Richard Graham wrote:
> I think that I should clarify the intent of my article. I am not
> saying that the economic outlook for the United States is strong
> or that this stock market rally will continue indefinitely. Rather,
> I believe that the rally should continue at least into quarter 3
> of this year. I believe that the market will continue to act as it
> has since March, with only minor correction in the short-term. This
> behavior is the main driver of the rally. This is not a long or medium
> term outlook. In the long or medium term, the stock market may finally
> realize the state of the US economy and strongly correct itself.
There are no green shoots. The headline writers continue to write misleading headlines every single day. Many countries, in their back rooms, are plotting the demise of the dollar as the reserve currency. I guess we can push that problem into the future too (it's become the American way). The US debt is already increasing exponentially from severe lack of self control and all our leaders want to do is pile more and more costs on us as healthcare reform and save-the-plant initiatives (then lie about how it'll be cheaper in the future). I feel like I live in the Twilight Zone. Serious problems face the citizens of the US, but what we mostly get is marshmellow news.
What has happened to all the bad loans that caused this problem? Where are they? Who is taking the loss? If you believe the news, they must have simply disappeared. There's no word of them, no sign of them. Yet, forclosures continue to climb at an alarming rate. Perhaps bad loans are just one of those "lagging" indicators that don't factor into the future.
The US is self destructing and we're being lead down that path by the so-called smartest of our society. I've had enough of the brainiaks. Give me someone with common sense for a change. The Fed is in the process of creating another bubble by pushing the problems forward. However, the cost of doing that will be too great for us to bear when the time arrives.
Your clarification is helpful. You may be right - the market may continue up for another half-quarter, or even full quarter. Maybe. However, if we all agree that it is topping - whether now or in a few weeks - how close to the top are we willing to try to call it? Nobody ever lost money by getting out a little early. Nine days ago I shifted from 75% equities to under 5%. The 95% balance is Treasuries, cash, and precious-metals ETFs. I don't mind losing a few percentage points - I've doubled my holdings in 3 years even with the downturn. If you're right and my timing is bad you may grab another 5% gain perhaps (just a wild guess); but you could see it drop that far in a day, and there is no foundation to this rally. Concerning the banks, I've been looking at many bank balance sheets lately, since I want confidence about where I put my money (since the FDIC is near bankruptcy; even though they would be bailed out by the Fed if necessary, it could be messy), and many are running negative net profits and are overextended in the commercial sector, another bubble. As for your observation that: "banks can now estimate the fair value of their illiquid (and deteriorating) assets instead of relying on market prices"; I don't believe they are also re-estimating the fair market value of their non-junk assets, thereby distorting the picture. They also dragging their feet on foreclosures to prop the balance sheets a little longer. The bank sector is more than just weak - it's in a crisis. And because of that, overall credit availability continues to shrink for all purposes, putting contraction pressure on the few genuine green shoots that are out there.
I'm not a risk-averse investor, but I've learned over time to be fully content with less than the maximum possible returns.
I wish you well with your investment choices.
On Aug 13 12:44 PM Richard Graham wrote:
> I think that I should clarify the intent of my article. I am not
> saying that the economic outlook for the United States is strong
> or that this stock market rally will continue indefinitely. Rather,
> I believe that the rally should continue at least into quarter 3
> of this year. I believe that the market will continue to act as it
> has since March, with only minor correction in the short-term. This
> behavior is the main driver of the rally. This is not a long or medium
> term outlook. In the long or medium term, the stock market may finally
> realize the state of the US economy and strongly correct itself.
so john paulson and co. buying over $2bill of BA and other financials is the "dumb money"
what smart money are you referring to your majesty? go back to channel surfing
look. dudes. when you are wrong - you just have to admit it. and move on. this debate is kind of over. today's data on Germany is interesting. It is an export economy. so someone somewhere is buying stuff. libor spread is back to normal - that's bad? no actually that's good, 30 year treasury auction was good - is that bad? no that's good.
dear reader, bear with me. I need to spell stuff out for the clowns.
what you people want is someone tocome and ring the bell and tell you it will all be alright.
you are in a low inflation, moderate US/good non-US growth envrionment with cheap money. figure it out.
no everything goes up or get's better all at the same time. clowns you need to be reasonable.
foreclosures blah, blah, blah - lagging indicator - worse than unemployment rate
consumer spending blah, blah, blah. does not have to grow enormously to drive growth here - inventories are so bare an inceease in demand could be a bad thing in the short run. do any of you ever get into the stores? since when is June a hard shopping month.
recovery is here.
On Aug 13 01:00 PM Schweizer wrote:
> Go all in my friend because the smart money is getting out.
On Aug 13 09:36 AM ain't no fortunate son wrote:
> Bulls make money, bears make money, pigs go to slaughter.
>
> If it were me, I'd be grateful for the free cash the past few months
> and looking for a fast trip out of Dodge before this "sluggish recovery"
> turns into a death spiral under the foreclosure tsunami (great numbers
> in July, eh, and they haven't even really started with the Option
> Arm and Alt A resets/recasts), CRE meltdown ("extend and pretend"
> those loans guys while the the tenants in your properties disappear
> into the night), and unemployment nightmare that is still unfolding
> (one may wish to consider that continuing claims is less relevant
> here than claims that have run out - those people who ran out of
> benefits still exist, capiche?).
>
> Just because you sprinkle a little pixie dust around and click your
> heels three times, doesn't mean that trees grow endlessly to the
> skies. Stocks are priced for perfection here... and until the banks
> clear a couple or three trillion in utter and intentionally mis-priced
> crap off their books, perfection is a long ways off.
On Aug 13 10:14 PM nmelendez wrote:
> BTW i love the story about paulson putting 350 billion in BA. Too
> bad the story does not include the stocks all have put protection.
> :). "Fools and their money are easily parted".
I remember my grandparents telling me that during WWII (they were from Italy) they just lived one day at a time for the simple fact that they did not know whether they would be alive the next. Investing now is very much like that. Will we continue in what seems to be a baseless rally or will we sink to the lows of last March, or maybe something completely new. This is not a normal pattern, the sidelines are too far apart to see the field. It is easy to become disoriented with the media screaming one thing in your ear, the numbers telling you something else and government throwing hope around like it will soon become illegal.
For now I invest daily. Read the tea leaves as well as I can and have one hand on the buy button and the other on the sell. My hope is that as time goes on the fog will clear. But these days the crystal ball is so cloudy, so very, very cloudy.
Good luck to all of you in these turbulent times.
On Aug 13 10:03 AM whidbey wrote:
> Good but wrong.
>
> This rally is a relief rally; relief that we did not disappear into
> the deep. But nothing is clear about the economy...yet.
>
> This is not a just a recession, it is a rebalancing of life styles
> and work for 20% of the US population and a lowering of income for
> all. The process will leave everything changed in quantity and quality.
>
>
> The rally is just the surface of a much larger storm in society.
1. Goes up on bad news from MSFT, AMZN, AXP's poor numbers results few weeks ago. Add to it today's 1st time unemployment and retail sales and it goes up. Invincible? Don't think so - it's bubble about to pop.
2. The investment gurus and analysts who got blind sided by last fall's fall and March low (boy weren't they pessimistic) are now in unison as bullish as ever, even with heck of a run since March.
3. Bears are hiding and appear to be capitulating on short covering. One can say the bears were "early" smart money.
4. Russell 2k has been on a tear. Speculation galore or halcyon days are back?
5. CNBC has special on Dow 9k and Cramer is pounding the table with buys and the lemming retail and professional investors are piling in. So much for the lows we had in Oct/Nov and March.
6. And even Barron's sounding bullish sans Abelson?
7. Historically Sept is the worst month followed by Oct. Just around the corner.
8. Low volume on recent rally in last month or so despite program trading. Volume proceeds price. Lack of volume on follow-thru to S&P 1k and Nas 2k portend downside ahead.
9. Very heavy insider selling. Insider selling to buying is 4.16 to 1 in July compared to 0.76 to 1 in March.
10. Lowry’s Buying Power Index nudges record 1933 low. Few breadth studies are as insightful as those provided by Lowry Research since 1931.
"The key to Lowry’s is not the absolute level of its Buying Power Index. It’s the relationship between Buying Power and Selling Pressure. The span between declining Buying Power and rising Selling Pressure hit a 78-year record distance of 807 on July 8. The wider the span, the more bearish the situation.”
Key Takeway?
My 2-cents is that we'll see 50% retracement to March low in Sept/Oct.
Time to load up on ultrashorts - QID, SDS, TWM.
you keep wearing them glasses, I'm getting the heck out of dodge (away from the market).
you can not stimulate an economy by taking on more debt and printing more dollars. you can not social engineer consumer confidence without digging a deeper hole for it to plunge into when bad news comes out.
current unemployment numbers misleading, CPI numbers had been inaccurate for decades, dollar index started at 125 around 1985 and is now around 79/80 (with more dollars to be printed). even if the dollar has been weakened to the extreme, the trade deficit keeps growing and the manufacturing base keeps shrinking. many calling for a shift to a service based economy....servicing what?
this weak dollar policy that's been followed for decades and coupled by fake CPI numbers that kept interest rates low have destroyed the currency and add the ridiculous rules, regulations, high taxes that businesses have to endure and you have a recipe for the destruction of a perfectly good economy.
analysts, year after year, decade after decade keep missing the fact that government policies, fake government numbers, and stupid regulations and taxes have all contributed to the decline of the economy. all of those efforts to make a "soft landing" during a recession have contributed in postponing "hard landings" which enables the economy to reset. postponing the hard landings only deepen the trough of the large economic cycle which we are now experiencing.
believe this article if you will, the fact remains, that nothing has improved if you look at the larger picture which encompasses decades of economic decline.
is it really that of a surprise for sales to decline after millions of people lost their jobs? LOL!
On Aug 14 02:38 AM Peter Cooper wrote:
> Profits rising due to cost cuts mean a deepening recession - what
> does cost cutting do to demand?
seekingalpha.com/insta...
The market should have never gone so low and it has come up faster than it should have.There are some stock prices that are well below where they should be and vice vera.
Deflation I think is off the table as well as a fast recovery.
Buy Food,energy,materials and clean water technology and you will be fine and happy in a few years.
If recovery happens They will recover nicely and also if inflation comes to pass-you will also be fine
I think the rally can continue- not because it should, but because I have lost all confidence in the ability of the equity markets to regress to the mean within a reasonable time period because of intervention, misleading statistics, distorted bank earnings and propaganda.
Will it continue indefinitely? No. We have not seen the bottom, not when 48% of mortgages will be underwater by 2011 at or around the same time that default rates on optionARM and commercial real estate peak. The prime and commercial real estate debacles are still in their early stages. It took a full year for the sub prime markets to from rumblings in the crust in Nov 2007 to full-blown earthquake in Q4 2008. This means we may not see the real carnage for a few months down the road.
Could it be that the unemployed[sitting at home & bitter about being fired for among other things not being a team player at work] are the ones with the time to support the under-employed/unemployed making the negative comments??????
Yes, we are in a difficult economic environment as a world but did you bother to read that the recession is ending in parts of Europe???
Will that help global companies who sell there??
Oh and one last thing, the CEO/Senior Management of Global companies get compensated based on profit achievement-does anyone think that they are sitting on their hands??? Oh and if you had not read the prospectus, today's Board members get compensated primarily via stocks which of course they would prefer to remain worthless so they work for nothing-Sure????
But it's all a grate success anyway. Incentive to stimulate sales still is to breathh clearner if not any freer but is the price worth paying up in full? So give us your sale pitich without the hook and bait tactic.
On Aug 13 08:31 PM FB5000 wrote:
> wow. reading the notes on this board just confirms the trend. the
> clownfest continues on SA.
>
> so john paulson and co. buying over $2bill of BA and other financials
> is the "dumb money"
>
> what smart money are you referring to your majesty? go back to channel
> surfing
>
> look. dudes. when you are wrong - you just have to admit it. and
> move on. this debate is kind of over. today's data on Germany is
> interesting. It is an export economy. so someone somewhere is buying
> stuff. libor spread is back to normal - that's bad? no actually that's
> good, 30 year treasury auction was good - is that bad? no that's
> good.
>
> dear reader, bear with me. I need to spell stuff out for the clowns.
>
>
> what you people want is someone tocome and ring the bell and tell
> you it will all be alright.
>
> you are in a low inflation, moderate US/good non-US growth envrionment
> with cheap money. figure it out.
>
> no everything goes up or get's better all at the same time. clowns
> you need to be reasonable.
>
> foreclosures blah, blah, blah - lagging indicator - worse than unemployment
> rate
> consumer spending blah, blah, blah. does not have to grow enormously
> to drive growth here - inventories are so bare an inceease in demand
> could be a bad thing in the short run. do any of you ever get into
> the stores? since when is June a hard shopping month.
>
> recovery is here.
>
>
>
>
>
>
On Aug 13 09:30 AM Tom Armistead wrote:
> Great article, that stuff about green shoots could have been written
> by Chance the Gardener.
On Aug 13 10:35 AM Nick36 wrote:
> I don't think this rally will continue because the earnings of companies
> are too low relative to their stock prices. And beating low-ball
> earnings estimates doesn't in any way make the P/E ratios of these
> companies any better.
>
> Perhaps short-term traders don't care about the actual earnings of
> companies. They only care if these earnings are better than expected
> or not. Because they don't hold their shares long enough to benefits
> from the dividends companies pay.
>
> But you can't say the same about long-term investors. Long-term investors
> do care about the actual earnings of companies in absolute sense.
> Because the reason why they invest is to take a share of their company
> profits.
>
> When it doesn't make sense for long-term investors to buy due to
> poor company profits in absolute sense. Then the stock market rally
> can't continue for long. Because by definition, short-term investors
> don't stay invested for long. Sooner or later they start selling.
> And that brings an end to the stock market rally.
Thanks.
5 questions:
www.surveymonkey.com/s...
However, there is a fatal flaw in "everyone's" underlying presumption that "the recovery will be..." The future tense of the verbal form "will be" is inappropriate in the present circumstance.. There is no more "will be." The odds are that the recovery is past.
Sacramento, California - Californians have shown tenacity and courage when it comes to earthquakes, fire seasons and civil unrest such as the Rodney King riots in Los Angeles. However, their patience with their state and local governments, guided largely by the powerful public employee unions and the typically Democrat legislators to whom unions lend their support is waning.
While making good theater, the economic threat to the State of California is real, here and now. The State's credit rating is dead last among all States in the country and, logically, cost for borrowing, if they can borrow at all, is at an all time high. Put another way, the State of California's credit card is maxed out...and the only way out is to add up your liabilities and begin a payment plan to dig the State out of its biggest fiscal hole ever. However, figuring out California's real and total liabilities are akin to a snake hunt, they are hidden in the weeds and quietly waiting to strike. A deadly fiscal rattlesnake awaits California cities and counties, and according to California Pension advisors it will strike next year.
The California State Teacher's Retirement System (CALSTRS) and the California Public Employee Retirement System (CALPERS) were formed to provide retirement, disability and survivor benefits for California's public employees. Combined, these retirement funds represented the biggest pension pool of investment capital in the world totally over $418 billion as recently as June of 2007.
The "dirty little secret" among public employees and Legislators, which passed the laws after intense lobbying by public employee unions, was and is that regardless of the investment gains or losses of funds, taxpayers (at the local, county and State levels) are the "guarantors" of all public employee retiree benefits... for life. Put another way, taxpayers have co signed on every public employee unions retirement package which are increasing in velocity and size at an alarming rate. So, how bad is it?
In the past 24 months, the State of California Public Employee Retirement System has lost over $128 billion...which is almost equal to the entire 2009 State Budget. In June of 2007, both systems assets totaled $413 billion. As of June, 2009, they reported combined assets of on $285 billion. The $128 billion in losses sits on top of an estimated $400 billion of unfunded pension liabilities cementing the likelihood of huge tax increases ahead for city and county governments as they struggle with stifling increases in their "dues" to the State Retirement coffers. This news further fuels the "run" on cash the State legislature is currently contemplating which unilaterally raids city and county coffers in order to address a current $30 billion budget gap in Sacramento. The horrible news for California taxpayers is these investment losses are now their liabilities and, of course, will be offset with either more taxes and user fee increases or deeper draconian cuts in services for the needy, seniors, students, schools and parks. According to CALPERS, city and county taxpayers can expect these increased "dues" to begin to crowd out local needs as early as July of 2010.
www.philadelphiafed.or.../
This gentlemen, is the opportunity of a life time but sadly most of you will not notice even if it kicked you in the rear end.
To end is a famous quote, "Hope is not a strategy".
A picture is worth 1000 words but in this case a picture could be worth thousands of dollars in your pocket.
tmr
On Aug 13 10:30 AM gmwright wrote:
> It is difficult to say if there will be a crash/correction or not.
> Personally I think there will be and my portfolio is prepared for
> that. But unless by stating the rally will continue you mean we will
> hover around 9000-9500 I can't see how you can be right. How high
> so you expect the SP500 to rise in the next 6 months? 1200? With
> all the contraction since the glory days of 2007 I just don't see
> how things can climb to only 20% drop from those all-time highs.
> Of course it can be propped up by money injected from the Fed/government
> but then you are just riding an artificial wave and you better hope
> you time it right.
>
> At the moment I am 50% cash and plan to see how the autumn plays
> out and if things hold I will invest into solid dividend payers since
> I expect growth to be small and the market to slide sideways for
> the next 2-3 years barring any major corrections.
On Aug 14 11:08 PM Maxe Paul wrote:
> I think we may now proclaim that this is a very weak article, backed
> up by hope.
>
> To end is a famous quote, "Hope is not a strategy".
I am not invested in any US based securities at the moment.
Finger poised on QID & BGZ though.
On Aug 13 11:34 AM j-dub wrote:
> Many more reasons for the markets to rally are listed right here,
> like it or not.
>
>
> beginning of month = rally
> end of month = rally hard
> end of quarter = rallying too hard for words
> California BK = fiscal rejiggering
> Michigan next in line = never mentioned
> CRE depression = REIT's explode higher
> Housing JUNE sales edge higher = housing is rebounding(again)
> GS front running trades = liquidity preservation
> Banks own congress and the Fed = bank rally
> consumer is insolvent = consumer is saving
> mass layoffs = across the board earnings' improvement
> earnings are not improving = earnings are beating street's expectations
>
> STILL no jobs created= the consumer is temporarilly retrenching<br/>...
> = bull rally
> expiration of unemployment benefits = unemployment is abating OR
>
> contracting(either will do just fine)
> Isn't our economy consumer based? = don't ask, don't tell consumer
> IS 70% of economy = rebound will be business based
> low interest rates = good for stocks
> high interest rates = great for stocks
> collapsing dollar = buy stocks
> rising dollar = not gonna happen
> $10 frozen dinner = sure sign of recovery
> CIT BK = HUUUUUUUUGE RALLY
> CIT not yet BK = reason to be bullish
> Bank failure Friday = stabilization
> oil @ 50 = recovery is close
> oil at $70 = recovery is incredibly close
> oil at $90 = starting to recover
> oil @ $110 = sign of increased consumer spending
> oil @ $5 = boon for Joe Consumer
> Gas @ $2 = tax break
> gas @ $3 = mustard seeds for economic recovery
> gas @ $4 = depression :)
> Gas @ $1 = not in our lifetime
> employment @ 10 % = better than expected
> employment @ 11% = as expected
> employment @ 12% = not unexpected
> employment @ 13% = could have been expected
> real unemployment right now @ 17% = never discussed
> real unemployment @ 22% = market could correct from here
> stealing from our grandchildren = stimulus
> stealing from our great grandchildren = "cash for clunkers is a huge
>
> success"
> government buying people cars = economy showing signs of life
> economy is already dead = S+P 1000, DOW 10k
> bear market rally = NEW bull market rally
> no basis for NEW bull market rally = dis-included in pumper's handbook
>
>
> 10% unemployment
> effects of socialism
> depressionary states
> higher taxes = THE NEW NORMAL
> oppressive government
> social unrest
> decending to mediocrity
>
>
> AND IF ALL ELSE FAILS(which probably will):
>
> WWIII = TANGIBLE MANUFACTURING GREEN SHOOT
I am pulling back slightly from the market and here are my conflicting thoughts
1) Looking at 5yr and 10 year charts I think the long term is up from here
2) At this moment we are ahead of ourselves and stocks have risen to far to fast.
3) My guess is we drop to a low between 800-850 in the next 3 months.
4) After severe retrenchments however people will not consider and are unable to see positive developments.
5) The comparisons in coming months to freefall frozen credit fears of a year ago should not be hard to beat.
6) I am a PE earnings guy and I dont like the PE valuations. However after the cost cutting that has largely been completed which has restructured businesses to profit at current activity levels I am ok with it.
7) Think Long! Trying to trade the market is difficult. Those profits largely go to flash traders who may see your trade data and take your ideas and profit on them ahead of you. I think it is stealing to get an advance look at others trades but it happens.
8) Based on what I see we drop to 825 in Oct and end the year at 1100. We end 2010 at 1275.
Lots of volatility for the next 3 years. Here's to big profits for all.
bulls are saying the recovery will be sluggish.